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Home Depot stock is currently trading at $317.15. There is a call available that expires...

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Accounting

Home Depot stock is currently trading at $317.15. There is a call available that expires in two weeks with a strike price of $320 and an option premium of $6.42.

What is the intrinsic value of this option?

$0

$1.25

$2.33

$4.09

How do we adjust a stock's price so that we can use the BSOPM for dividend paying stocks?

A.

Multiply the FV of the dividend payment using continuous compounding by the stock price
B.

Multiply the PV of the dividend payment using continuous discounting by the stock price
C.

Subtract the FV of the dividend payment using continuous compounding from the stock price
D.

Subtract the PV of the dividend payment using continuous discounting from the stock price

Suppose that we have a stock with a price of $75. We want to price a call option using the binomial model that has a strike price of $82. We are going to use steps of 5 days and price it for 20 days, so today plus four more time steps. The stock has a volatility of 47% and the risk free rate is 1%.

What is our UP multiplier?

A.

.9887
B.

1.011
C.

1.057
D.

1.567

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